Petroleum products

Refining, Supply & Trading Activity in Greece

In Greece, the Group owns and operates three refineries in Aspropyrgos, Elefsina and Thessaloniki, which account for approximately 65% of the country’s total refining capacity and combine a storage capacity for crude oil and petroleum products of 6.65 million m³.

Τhe three refineries and their individual technical characteristics are described below:

15m MT

Highest production on record

52%

Exports accounting for 52% of total sales

Refinery
(Greece)

Daily Refining
Capacity in Kbpd

Annual Refining
Capacity
(ml.MT)

Refinery
Configuration

Nelson
Complexity
Index

Aspropyrgos

148

7.5

Cracking (FCC)

9.7

Elefsina

100

5.0

Hydrocracking

12

Thessaloniki

93

4.5

Hydroskimming

5.8

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Τhe domestic refineries are treated as a single, unified system. Crude oil purchases, production scheduling and sales forecasting are carried out for the Group’s refining system centrally, with the objective of optimizing profitability, while taking into account prevailing (Eastern Mediterranean/ South Eastern Europe) crude oil and product prices as well as domestic demand. The Group’s ability, due to its refineries’ increased complexity, to process intermediate products (SRAR, VGO) and adjust its crude slate and oil processing levels, represents a key competitive advantage.

In 2017, the refining industry recorded new highs at 15 million tones due to the high availability of all units (and despite the unplanned shutdown at the Elefsina refinery). As a result of increased production, product sales recorded highest levels in recent years due to increased volumes in the domestic market as well as in the aviation and bunkering fuel markets. These results were achieved mainly due to the operational optimization at the Aspropyrgos and Thessaloniki refineries, where processing was at a record level. The synergies between the three refineries were also significant, with a positive impact on profitability.

The positive economic environment for European refineries in 2017 (strong international margins, strong dollar) as well as the continuous improvement in operational performance, were the key drivers of Refining, Supply and Trading results.

HELLENIC PETROLEUM's sales increased for the 7th consecutive year, amounted to 16.1 million tons, with exports accounting for 52% of total sales, with the Group sustaining its position as one of the most export oriented in the Eastern Mediterranean.

The Aspropyrgos and Elefsina refineries’ yield of high value products (gasoline, jet fuel and diesel) remained at high levels, among the highest in the European refining industry. A number of initiatives aimed at increasing the refineries’ competitiveness yielded economic benefits which exceeding €30 million in 2017.

Indicatively, the planned investments, which were completed in 2016 and were aimed at improving the energy efficiency indices (in particular at the Elefsina and Thessaloniki refineries, which significantly reduced their own consumption rate), have resulted to a significant reduction in energy consumption and cost.

Moreover, the use of natural gas substituting LPG, naphtha and fuel oil for hydrogen production and own-consumption in the Elefsina and Thessaloniki refineries also made a significant financial contribution.

The percentage of intra-refinery flows of intermediate products and raw materials exceeded 10%, as in 2016, sustaining significant optimization capabilities in production and trading.

In addition, propylene output at the Aspropyrgos refinery (propylene is the raw material used in the Thessaloniki plant) reached a new historical high, resulting in reduced propylene imports, while the performance of high octane gasoline blending components also improved.

Finally, the operation of the flexicoker unit at the Elefsina Refinery improved, after successful completion of extensive maintenance work during the third quarter of 2017, resulting to significant improvement of its performance.

HELPE refining system overview*

16 MT
NCI: 9.3

*pro-forma at normal operations

Crude oil supply

Crude oil supplies are centrally coordinated and are covered through term contracts and spot transactions. The oversupply of all types of crude oil continued in the first half of 2017, as a key trend of the global and Mediterranean oil markets, with a positive impact on prices for HELLENIC PETROLEUM, especially for the heavier crude types in our region. This was also supported by the normalization of the crude oil production and flows from Libya. Since the summer of 2017, OPEC's efforts to reduce production have gradually led to a reduction in supply and an increase in international prices. HELLENIC PETROLEUM took advantage of its improved financial liquidity as well as significant opportunities presented in the Mediterranean crude oil pricing structure. In this way, the supply mix was adjusted, resulting in an increase in supply from Iran and Iraq (22%), with a reduction in purchases from Russia to 10% and Kazakhstan to 10%, while the contribution from Saudi Arabia was 5%. In terms of Mediterranean crudes, Libya (9%) increased significantly, with a corresponding decrease from Egypt (4%), while the contribution from other sources (13%) slightly increased.

Both the Group’s ability to access and its refineries’ flexibility to process a wide range of crude oil types, proved to be particularly important in terms of driving profitability. The Group’s ability to respond to sharp supply shortages of specific types of crude oil also ensured for uninterrupted supply into the markets where the Group operates.

Financial Results and Key Operational Indicators:

Financial Results (€ m.)

2017

2016

Sales

7,001

5,707

Adjusted EBITDA

639

536

Performance Indicators

Complex refinery margin (FCC)

$5.9/bbl

$5.0/bbl

Sales Volumes (ΜΤ’000)

16,056

15,455

Diversified crude oil and feedstock sourcing

Wholesale Trading (Refined product sales)

Oil products sales are carried out by the parent company HELLENIC PETROLEUM S.A. to the fuels marketing companies in Greece, including the subsidiary EKO, as well as to certain special customers, such as the country’s armed forces, whilst approximately 50% of production is exported. All of the Group’s refined products comply with the prevailing European standards. During 2017, total sales from domestic refineries increased by 3% to 16.1 million tons.

Domestic market sales increased by 11% to 4.9 million tons, mainly due to increased diesel and fuel oil demand.

Aviation sales continued to rise and amounted to 745 thousand tons (+ 6%), while marine fuels sales increased by 19% to 2.0 million tons. Exports were at particularly high levels and amounted to 8.4 million tons (-2.4%).

Sales per trade channel (ΜΤ’000)

International Activities

The Group’s international activities refer to the OKTA facilities in Skopje, FYROM, connected to the Thessaloniki refinery through a pipeline transporting high value-added products (e.g. diesel). The refinery’s location is one of its significant competitive advantages for the domestic distribution of products through marketing companies, as well as exports to neighbouring Balkan markets.

In 2017, OKTA focused on the trading and distribution of petroleum products with sales of 768 thousand tons equalling a 2% increase vs. 2016.

Fuels Marketing

The Group takes advantage of the significant synergies among its networks in Greece and SE Europe in the areas of marketing and commercial policy, through sharing best practices and successful products.

HELLENIC PETROLEUM Group is active in the marketing and distribution of petroleum products, both in Greece through its subsidiary ΕΚΟ ABEE as well as internationally through its subsidiaries in Cyprus, Bulgaria, Serbia, Montenegro and FYROM.

The Group takes advantage of the significant synergies among its networks in Greece and SE Europe in the areas of marketing and commercial policy, through sharing best practices and successful products.

Financial Results and key performance indicators:

Financial Results (€ m.)

2017

2016

Sales

2,912

2,336

Reported EBITDA

95

93

Adjusted EBITDA

107

101

Performance Indicators

Sales Volumes (ΜΤ΄000) –Total

5,165

4,668

Sales Volumes (ΜΤ΄000) – Greek Network

4,058

3,538

No. of petrol stations - Greece

1,760

1,739

No. of petrol stations – International(includes OKTA brand PSs)

302

299

Domestic Marketing

In Greece, the Group’s network of petrol stations exceeds 1,700 under the EKO and BP brands,15 bulk storage and supply terminals, 23 aircraft refueling stations in the country’s main airports, 2 LPG bottling plants and 1 lubricant production and packaging unit.

In Retail, motor fuels sales were higher, with a further increase of 11% for diversified fuels, resulting in increased profitability as well as an improvement in motor fuels’ market share, which collectively exceeded 31% for both EKO and BP.

In Aviation and Bunkering sales recorded an increase of + 9%, mainly due to increased tourist traffic, with EKO maintaining its leading position, while sales of lubricants and LPG also increased.

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The emphasis on the development of company operated network –which currently exceed 200 service stations- and the improvement of services provided continued with enhanced cooperation with selected suppliers, supermarket chains, cafes and restaurants and resulted in a 15% increase in sales of non-fuel retailing (NFR), with significant strategic benefits for the Group.

The Group has an agreement with BP plc for the exclusive use of BP's trademarks for ground fuels in Greece until the end of 2020, with the possibility of further 5-year renewal.

Domestic marketing sales (ΜΤ’000)

International Marketing

The Group international business operates through its subsidiaries in Cyprus, Bulgaria, Serbia, Montenegro and FYROM, with a total network of c.300 petrol stations.

In Cyprus and Montenegro, the local subsidiaries (from the acquisition of preexisting companies) hold leading positions in their markets.

In Bulgaria and Serbia, where activities began greenfield, the Group’s subsidiaries recorded rapid growth after 2005 and are currently among the top five companies in their sector.

In FYROM, the network of 25 petrol stations bears the brand name of the OKTA Group subsidiary.

Products’ strong demand, retail network growth and continuous marketing activities led to an increase in sales in most of the Group’s international companies; combined with improved margins, led to increased profitability for all International Activities. At the same time, the vertical integration of commercial subsidiaries with the Group's refineries is sustained at high levels, aiming to maximize economic benefits.

In Cyprus, the network growth by the end of 2016, as well as increased demand, led to higher retail and wholesale sales, mainly in the C&I and the aviation sector, resulting in improved profitability.

In Bulgaria the network also increased and NFR contribution improved, however profitability was reduced due to increased competition and higher operating costs.

In Montenegro, demand growth in aviation fuels has led to increased sales and profitability. At the same time, investments focused on the retail network expansion, as well as the revamping of existing service stations.

Sales volumes in international markets (ΜΤ’000)

EBITDA contribution in international markets (€ m)

Production and Trading of Petrochemicals

Petrochemical activities mainly focus on further processing of refinery products such as propylene, polypropylene, solvents and inorganics and marketing them in the domestic and international markets. Part of the production takes place in Aspropyrgos where propylene is produced, while most of the chemical units are located at the Thessaloniki refinery. The production of polypropylene is based on the Basel technology, which is considered as one of the best of its kind internationally.

Based on its financial contribution, the propylene- polypropylene-BOPP value chain represents the main activity for petrochemicals. Export activity is deemed as particularly important as 70% of sales volumes are directed to Turkey, Italy, the Balkans and the Iberian where they are used as a raw material in a series of manufacturing applications.

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In 2017, petrochemical sector profitability remained strong, recording an EBITDA of €95 million.

Main factors that negatively impacted profitability were the reduced production of polypropylene (-7%) due to the scheduled shutdown, and propylene from the Aspropyrgos Refinery (-4%), lower sales volumes (-5%), as well as wicker benchmark polypropylene margins (-3%) and the strengthening of the euro in the second half, that affected margins.

Financial Data and key operational indicators:

Financial Results (€ m.)

2017

2016

Sales

267

252

Adjusted EBITDA

95

100

Performance Indicators

Sales Volumes (ΜΤ΄000) –Total

243

256

International Polypropylene Margin ($/ΜΤ)

538

548

Petrochemical Sales (ΜΤ’000)

Evolution of benchmark polypropylene margins 2016-2017 ($/Τ)

Creation of exploration portfolio in Greece

Exploration and Production

Partnering with sector leading companies in developing an exploration portfolio in Greece

In 2017, the Group’s main activities focused on Greece, as presented below:

The Group participates, with 25% in a consortium with Calfrac Well Services Ltd (75%) in the Thracian Sea Concession area, in the North Aegean (1,600 sq km). Geological studies are currently being carried out in the area.

In addition, HELLENIC PETROLEUM participates as an operator through its 100% owned subsidiary HELPE PATRAIKOS (50%) in an international consortium with EDISON International SpA (50%) in the Lease Agreement with the Greek State in an offshore area in the West Patraikos Gulf, with a total area of 1,892 sq. Km.

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The Lease Agreement was ratified by the Greek Parliament, Government Gazette Issue A, 221/03-10-14. During the first exploration phase, exploration works that exceeded the minimum contractual obligations were carried out, including two-dimensional (2D) marine seismic recordings of 325 km and 3D marine seismic recordings of a total length of 1,822 km. Data was also reprocessed in regards to 2,000 km of existing seismic lines. Furthermore, geophysical, geophysical and environmental studies have been reprocessed for a better understanding of the geology of the area and in order to identify drilling sites.

As a result of international tenders, HELLENIC PETROLEUM has been awarded exploration and exploitation rights in two onshore areas, namely "Arta - Preveza" and the "Northwest Peloponnese". In addition, the consortium comprised of Total 50% (Operator), Edison (25%) and HELPE (25%) hold the exploration and exploitation rights for offshore Region 2, West of Corfu.

For the offshore area in the Ionian Sea (Block 10) in the Kyparissias Gulf, where HELPE has been declared a Preferred Contractor (100%), the negotiations for the terms of the Lease Contract are in progress. In the offshore area (Block 1) in the Ionian Sea, north of Corfu, where HELLENIC PETROLEUM has submitted an offer, it is expected that it will be declared as the Preferred Bidder, while as a member of a consortium, HELPE has submitted an offer for two offshore regions west and southwest of Crete (Total 40% Operator, ExxonMobil 40%, HELPE 20%) and one in the Ionian (Repsol 50% Operator, HELPE 50%).

Renewable Energy Sources (R.E.S.)

HELLENIC PETROLEUM RENEWABLE ENERGY SOURCES S.A. (HELPE Renewables) was founded in 2006 and is a 100% Group-owned subsidiary. The Company’s objective is the production, distribution and trade of energy products from the exploitation of renewable energy sources as well as the study, trading, construction and installation of renewable energy systems (wind, solar, biomass etc.)

HELLENIC RENEWABLES has set the goal of developing significant wind, photovoltaic and biomass capacity of 200 MW in the coming years, diversifying its energy portfolio and contributing to balancing the Group’s greenhouse gas emissions. The reduction in carbon footprint will be at least 250,000 tons per year, offsetting a significant proportion of CO2 emissions corresponding to the refinery and gas-fired electricity generation activities.

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HELPE Renewables already operates PV parks located on owned land with installed capacity of 10 MW as well as a 7 MW wind park in Pylos, Messinia. In 2017, HELPE Res completed projects with total capacity 8.6 MW for witch HELPE Renewables participated in the first PV competitive tender process, organized by RAE in December 2016.

The projects presented below:

PV project with a total capacity of 3.6 MW at HELPE’s Aspropyrgos refinery.

PV project with a total capacity of 4.0 MW at HELPE’s Thessaloniki refinery.

PV project with a total capacity of 1.0 MW at the Industrial Park of Kavala.

The company operates 7 PV net-metering systems with a total capacity of 70 kW at an equal number of EKO and BP fuel stations. For the year 2018, the expansion of the net-metering system is scheduled to be extended to other four EKO and BP liquid fuel stations. The company continuously assesses investments in own production for own consumption at the Group facilities, which are connected to the LV and MV networks.

Power Generation and Trading

The Group is active in the production, trading and supply of power in Greece through its participation (50%) in the JV Elpedison B.V. (the remaining 50% is held by EDISON International). Elpedison B.V. Group owns a 75.78% of the share capital of Elpedison S.A. (Elpedison S.A. resulted from the absorption of Elpedison Energy S.A. by Elpedison Power S.A.), with ELLAKTOR (22.74%) and HALCOR (1.48%) owing the rest.

ELPEDISON S.A. is currently the second largest independent power producer in Greece with a total installed capacity of 810 MW (comprising a 390 MW plant in Thessaloniki, since 2005, and a 420 MW plant in Thisvi, since 2010).

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On the supply sector, ELPEDISON S.Α. is one of the largest alternative independent electricity suppliers with sales of 1,650 GWh, a 3.5% market share in high, medium and low voltage customers and has recorded rapid growth over the course of the year.

ELPEDISON S.A.’s results declined compared to 2016, with EBITDA amounting to €31 million. Despite the higher production in the company’s two plants, due to the improved competitiveness of natural gas as a fuel for power generation, the delay in establishing a flexibility remuneration scheme for the producers of electricity from Natural Gas, proved to be a negative factor. In addition, intense competition in the retail electricity market as well as the imposition of supplier billing to cover the Special Renewable Energy Account deficit also had a negative impact.

Greek Energy Mix

Natural Gas

The Group is active in the natural gas sector through its 35% participation in DEPA S.A., with the remaining 65% owned by the HRDAF. DEPA Group is active in the supply of natural gas in Greece through import pipelines and the Revithoussa LNG terminal, as well as in the trading of natural gas to selected end-users (annual consumption> 100 GWh). DESFA, a 100% owned subsidiary of DEPA, manages and develops the National Natural Gas Transmission System. DEPA holds a 51% share in local supply companies (EPAs) which distribute Natural Gas to small and medium scale customers through the low- pressure gas network as well as distribution companies (EDAs) who manage the low pressure distribution network, following the unbundling of transportation and supply activities. DEPA also participates in international gas transportation projects.

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In March 2017, the sellers (HELLENIC PETROLEUM and the HRDAF) in the context of value maximization of their participation in the high pressure transmission network (DESFA SA - 100% subsidiary of DEPA SA), announced a new tender for the sale of 66% of its share capital alongside the parallel termination of the previous tender. On February 16, 2018, two (2) bids were received from consortia of European companies and on 19 April 2018, the BoDs of the sellers have accepted €535m offer from Snam S.p.A., Enagás Internacional S.L.U. and Fluxys S.A. Joint Venture for the 66% of DESFA (HELPE share of sale proceeds: €283.7m). The transaction is subject to approvals by competent authorities.

DEPA’s results were stronger in 2017 vs 2016, as the increase in demand from power generators led to higher natural gas sales volumes. Also, DESFA’s increased profitability was an important factor in improving results, as natural gas volumes that were transported through the National Natural Gas System increased (2017 consumption at 4.7 bcm, + 20% vs. 2016).

DEPA Sales Volumes (bcm)

Engineering

ASPROFOS, a Group subsidiary, is the largest Greek engineering firm and largest energy consulting services provider in South-Eastern Europe. It operates in accordance with internationally accepted standards and practices, certified by ISO 9001, ΕLΟΤ 1429, ISO 14001 and OHSAS 18001.

In 2017, it employed 213 qualified professionals. ASPROFOS directly supports the Group’s investments particularly in the fields of refining and natural gas, through the provision of a broad range of technical, project management and other related advisory services while seeking to continuously differentiate the range of its services, and broaden its client portfolio to include mainly international clients.

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In 2017, the Company’s turnover reached €9.7 million through the provision of services to 150 projects, the most important of which are outlined below:

Advanced Basic and Detailed Design (FEED) and Environmental Impact Study for the natural gas pipeline between Greece and Italy (Poseidon).

Licensing and Technical/Engineering Services for the TAP pipeline and detailed design of section 1.

Implementation of Basic Design and Hazard and Operability Study (HAZOP) for the Vacuum Distillation (VDU), Naphtha Isomerization and Naphtha Desulfurization Units at the Aspropyrgos Refinery.

Installation of an Amine Unit at the Rijeka Refinery in Croatia.

A series of feasibility studies for investments made by KMG Rompetrol at its refineries in Romania.

Basic Design for the installation and interconnection of three bulk gas storage tanks at the Aspropyrgos Industrial Installations.

Finally, in 2017 ASPROFOS undertook its first project in Kuwait for the study of conversion units at KNPC's Mina Al Ahmadi (MAA) refinery.